Locking Bias

Locking Bias

Stocks are continuing their run higher, surpassing their 200 day moving average. This is a significant move that could help stocks regain the final losses they accumulated when they went through their market correction in late summer. However, this by no means stocks are out of the woods. The recovery isn’t based on strong earnings, higher levels of inflation or strong economic conditions. The recovery has heavily been influenced by a Fed that has been unwilling to tighten policies and raise interest rates, as well as a global economy where a strong US dollar has attracted foreign investments. As these factors fluctuate, the US stock market could face additional volatility.

 

Mortgage bonds remained trapped in the same tight range they have been in for weeks now. However, the volatility is becoming more prevalent. In fact, yesterday bonds were able to temporarily break above overhead resistance for a short time. That changed this morning when bonds were pushed lower and forced back into the channel. With stocks blasting higher, this will continue to add pressure to mortgage rates. Depending upon the strength of the stock market rally, bonds could be at risk of falling beneath their 200 DMA.

 

With bonds continuing to struggle, we will maintain our locking bias. We see little opportunity for significant gains in the short term.